Has festival cheer brought India's consumption story back on track?

High inflation failed to dampen festive spirits during the Navratri as people, especially in cities, went on shopping spree. The latest CMIE Consumer Pyramids Household Survey shows, during September, the index of consumer sentiments rose to a 30-month high. 

Elaborating on it, Mahesh Vyas, the managing director and CEO of the Centre for Monitoring Indian Economy, on Monday said while the consumer sentiments rose by 7.1 per cent in September, the unemployment rate also dropped to a four-year low of 6.3 per cent during the period.

Vyas emphasised that the fall in unemployment rate and the improvement in consumer sentiments was witnessed across both rural and urban regions. While urban consumer sentiments increased 9.3 per cent, rural sentiments rose by 5.6 per cent in September. 

The respective indices of consumer sentiments were at their highest in 30 months. Although rural India lost some steam in October, its 30-day moving average Index of Consumer Sentiments is at its peak since April 2020. 

Despite high inflation and high interest rates, the CMIE survey recorded a sharp increase in the propensity of households to buy consumer durables in September across both rural and urban regions.

In fact, there are signs of improvement in consumption across segments. The recent Redseer 2022 Ecommerce Festive Sales report reveals that the online retail market touched 5.7 billion dollars in gross merchandise value, registering about 27 per cent growth from a year earlier, during the first week of the festive season – from 22nd of September to the 30th. 

Mobile phones continued to lead the market during this period. The report also found that online shopper-base had jumped by 24 per cent over the corresponding period last year. While 65 per cent of the shoppers came from cities other than metros, the spending by each online shopper also increased by three per cent during the particular festive week.

Auto sales were also buoyed by the festival cheer. 

The Federation of Automobile Dealers Associations, or FADA, reports that this Navratri, retail vehicle sales were up 57 per cent to over 5,30,000 units, from slightly above 3,40,000 units during the Covid-hit 2021-22. 

Sale of all categories of automobile, including two-wheelers, three-wheelers, commercial vehicles and tractors, put up a strong show during the Navratri this year [FADA]  

In a major boost to the automobile sector, not only were overall sales increased by 27 per cent compared to Navratri-sales last year, but also 16 per cent above the pre-pandemic 2019 season. 

The numbers were a clear indication of the fact that after a gap of three years, customers are returning to the showrooms in a big way.

One of the indicators of a worrisome K-shaped economic recovery has been the recent trend in auto sales, where expensive SUVs have seen brisk sales, while two-wheelers found few takers. But, this Navratri, even the two-wheeler category, which was showing weakness when compared to pre-Covid months, registered single-digit growth.

The current year’s two-wheeler sales numbers were 20 per cent higher than 2020 and four per cent higher than 2019. In fact, all categories showed positive momentum when compared to the pre-Covid Navratri 2019. FADA estimates, this positive trend is likely to continue till Diwali.

This indication of a broad-based recovery in consumption will be a welcome trend, since a recent survey conducted by UBS Securities India indicates that affluent consumers were upbeat about spending during the festival season, but those in lower-income groups did not share their optimism. 

A Bank of Baroda report in September shared that the production of daily consumption items, which continued to see elevated price pressures, showed a drop in April-July 2022 and also when compared to pre-pandemic levels. Meanwhile, items like liquor, travel goods, bottled water, aerated drinks and passenger vehicles, especially in the high-end segment, showed momentum.

So, how will the impact of elevated and sticky inflation play out on the purchasing power of certain segments of the population, especially those that have been deeply affected by the Covid-19 pandemic?

[Expert byte]

Citing rising borrowing costs and global risks, the World Bank has cut India’s growth forecast for FY23 by a full percentage point to 6.5 per cent. Crude oil prices are on the boil again, even as the Russia-Ukraine war stretches on. At a time when exports can no longer be the engine driving India’s economic recovery and the global economy is teetering on the edge of recession, can the country count on its domestic consumption, buoyed by its peak shopping season, to help sustain growth?  

[Expert byte]

With export engine sputtering, promoting domestic consumption has become all the more pertinent. The Reserve Bank of India and the government will have to stay focused on controlling inflation, which has the potential to impact the purchasing power of consumers.